AIG 2013 Annual Report Download - page 213

The following sensitivity analysis table summarizes the effect on the loss reserve position of using certain
alternative loss cost trend (for accident years where we use expected loss ratio methods) or loss
development factor assumptions rather than the assumptions actually used in determining our estimates in
the year-end loss reserve analyses in 2013.
5 percent increase $ 1,350 6.0 percent increase $ 1,250
5 percent decrease (1,100) 3.4 percent decrease (750)
25.5 percent increase 1,000 16 percent increase 950
28.0 percent decrease (800) 8.5 percent decrease (500)
5 percent increase 400 Increase(b) 1,350
5 percent decrease (250) Decrease(b) (650)
(a):
6.2 percent increase 1,900
4.5 percent decrease (1,400)
(a) Loss cost trend assumption does not have a material impact for this line of business.
(b) Percentages not applicable due to extremely long-tailed nature of workers’ compensation.
The estimation of reinsurance recoverable involves a significant amount of judgment, particularly for latent exposures,
such as asbestos, due to their long-tail nature. Reinsurance assets include reinsurance recoverable on unpaid claims
and claim adjustment expenses that are estimated as part of our loss reserving process and, consequently, are
subject to similar judgments and uncertainties as the estimation of gross loss reserves.
We assess the collectability of reinsurance recoverable balances through either detailed reviews of the underlying
nature of the reinsurance balance or comparisons with historical trends of disputes and credit events. We record
adjustments to reflect the results of these assessments through an allowance for uncollectable reinsurance that
reduces the carrying value of reinsurance assets in the balance sheet. This estimate requires significant judgment for
which key considerations include:
• paid and unpaid amounts recoverable;
• whether the balance is in dispute or subject to legal collection;
• whether the reinsurer is financially troubled (i.e., liquidated, insolvent, in receivership or otherwise subject to formal
or informal regulatory restriction); and
• whether collateral and collateral arrangements exist.
At December 31, 2013, the allowance for estimated unrecoverable reinsurance was $276 million.
See Note 8 to the Consolidated Financial Statements for additional information on reinsurance.
Long-duration traditional products include whole life insurance, term life insurance, accident and health insurance,
long-term care insurance, and certain payout annuities for which the payment period is life-contingent, which include
certain of our single premium immediate annuities and structured settlements.
For long-duration traditional business, a ‘‘lock-in’’ principle applies. The assumptions used to calculate the
benefit liabilities and DAC are set when a policy is issued and do not change with changes in actual experience,
Excess casualty: Excess casualty:
D&O: D&O:
Excess workers’ compensation: Excess workers’ compensation:
Reinsurance Assets
Future Policy Benefits for Life and Accident and Health Insurance Contracts (AIG Life and Retirement)
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AIG 2013 Form 10-K 195
ITEM 7 / CRITICAL ACCOUNTING ESTIMATES
December 31, 2013 Effect on Loss Effect on Loss
(in millions) Reserves Reserves
Primary workers’ compensation Primary workers’ compensation:
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Loss cost trends: Loss development factors: